UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report : June 19, 2003
Date of earliest event reported: June 4, 2003
Plains Exploration & Production Company
(Exact Name of Registrant as Specified in Charter)
Delaware (State or Other Jurisdiction of Incorporation) | 001-31470 (Commission File Number) | 33-0430755 (IRS Employer Identification No.) |
500 Dallas Street, Suite 700
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (713) 739-6700
1
Item 2. Acquisition or Disposition of Assets.
On June 4, 2003, Plains Exploration & Production Company, or PXP, acquired 3TEC Energy Corporation, or 3TEC, pursuant to an Agreement and Plan of Merger dated February 2, 2003. In the transaction, each 3TEC common share was converted into 0.85 of a share of PXP common stock and $8.50 in cash. In connection with the merger, PXP paid cash consideration to common stockholders of approximately $152.4 million and issued 16.1 million PXP common shares. In addition, cash payments totaling $113.1 million were made to retire 3TEC outstanding debt, warrants and preferred stock. PXP financed the cash portion of the merger consideration with the proceeds from a private offering of $75 million in aggregate principal amount of senior subordinated unsecured notes issued in the same series as its Senior Subordinated Notes due 2012 and with borrowings under its $500.0 million senior revolving credit facility with JPMorgan Chase Bank serving as administrative agent. As a result of the merger, 3TEC became a subsidiary of PXP. PXP had 40.3 million outstanding common shares after closing. The transaction is being accounted for as a purchase of 3TEC by PXP.
Prior to the acquisition, 3TEC was engaged in the acquisition, development, production and exploration of oil and gas reserves, with properties concentrated in East Texas and the Gulf Coast region, both onshore and in the shallow waters of the Gulf of Mexico. As of December 31, 2002, 3TEC had estimated total net proved reserves of 49 MMBOE, of which approximately 87% were gas and approximately 81% were proved developed. 3TEC common stock was quoted on The NASDAQ National Market under the symbol “TTEN.”
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the Business Acquired.
The following information is hereby incorporated by reference in this report:
1. 3TEC’s consolidated financial statements as of December 31, 2001 and 2002 and for each of the calendar years in the three year period ending December 31, 2002 and related notes on pages F-39 through F-63 in PXP’s Registration Statement on Form S-4 dated May 1, 2003 (File No. 333-103149), and the report of KPMG LLP, independent auditors, thereon included therein; and
2. 3TEC’s consolidated financial statements as of March 31, 2002 and 2003 and for each of the three month periods then ended and related notes contained in 3TEC’s Quarterly Report on Form 10-Q for the three months ended March 31, 2003 (File No. 001-14745).
(b) Pro Forma Financial Information.
2
Plains Exploration & Production Company
Unaudited pro forma consolidated financial statements
The following unaudited pro forma consolidated statements of income for the three months ended March 31, 2003 and the year ended December 31, 2002 have been prepared based on the historical consolidated statements of income of Plains Exploration & Production Company, or Plains, and 3TEC Energy Corporation, or 3TEC, under the assumptions set forth in the accompanying footnotes. The unaudited pro forma consolidated balance sheet at March 31, 2003 has been prepared based on the historical consolidated balance sheet of Plains under the assumptions set forth in the accompanying footnotes. The reorganization, debt issuance and spin-off transactions described below are reflected in the historical consolidated balance sheet of Plains at March 31, 2003.
On July 3, 2002, as provided in the Separation Agreement, Plains Resources Inc., or Plains Resources, transferred to Plains (previously known as Stocker Resources L.P.) 100% of the capital stock of Arguello Inc., Plains Illinois, Inc., PMCT, Inc. and Plains Resources International Inc. and all amounts payable to it by Plains and its subsidiary companies. These transactions are referred to as the “reorganization.” As part of the reorganization, Plains was converted into a Delaware corporation on September 18, 2002. The effect of the reorganization is reflected in the Reorganization, Debt Issuance and Spin-off Adjustments in the unaudited pro forma consolidated statements of income for the year ended December 31, 2002.
On July 3, 2002 Plains issued $200.0 million of 8.75% senior subordinated notes due 2012, or the Initial Notes. Also on July 3, Plains entered into a $300.0 million revolving credit facility and made initial borrowings of $117.6 million. On July 3, Plains distributed the $195.3 million net proceeds from the Initial Notes and $116.7 million of the initial borrowings under the Plains credit facility to Plains Resources. The effect of these transactions is reflected in the Reorganization, Debt Issuance and Spin-off Adjustments in the unaudited pro forma consolidated statements of income for the year ended December 31, 2002.
On December 18, 2002 Plains Resources distributed all of the issued and outstanding shares of Plains common stock to the holders of Plains Resources common stock on the basis of one share of Plains common stock for every one share of Plains Resources common stock held as of the close of business on December 11, 2002 (the “spin-off”). Prior to the spin-off, Plains Resources made a $47.2 million cash capital contribution to Plains. In addition, prior to the spin-off Plains Resources transferred to Plains certain assets and Plains assumed certain liabilities of Plains Resources, primarily related to land, unproved oil and gas properties, office equipment and pension obligations. The effect of these transactions is reflected in the Reorganization, Debt Issuance and Spin-off Adjustments in the unaudited pro forma consolidated statement of income for the year ended December 31, 2002.
Historically, general and administrative expenses consist of Plains’ direct expenses plus amounts allocated from Plains Resources for various operational, financial, accounting and administrative services provided to Plains. Plains estimates that as a result of the reorganization and the spin-off, its annual general and administrative expenses will increase by approximately $4.1 million over the historical amount for the year ended December 31, 2002 reflecting the incremental costs of operating as a separate, publicly-held company.
On May 30, 2003 Plains issued, in a private offering, $75 million of 8.75% senior subordinated notes due 2012, or the New Notes, in the same series as the Initial Notes. Pro forma Offering Adjustments reflects the New Notes and the application of the estimated net proceeds.
3
On June 4, 2003 Plains acquired 3TEC pursuant to an Agreement and Plan of Merger dated February 2, 2003, or the merger. Under the terms of the agreement 3TEC stockholders received $8.50 in cash and 0.85 shares of Plains common stock for each share of 3TEC common stock. This transaction is being accounted for by Plains using the purchase method of accounting. The effect of this transaction is reflected in the Merger Adjustments in the unaudited pro forma consolidated financial statements.
Plains and a group of lenders have entered into a three-year, $500.0 million senior revolving credit facility with JPMorgan Chase Bank serving as administrative agent. The credit facility provides for a borrowing base of $402.5 million and Plains borrowed $240 million upon closing of the merger. Additionally, the credit facility contains a $50.0 million sub-limit on letters of credit. To secure borrowings, Plains pledged 100% of the shares of stock of its domestic subsidiaries and gave mortgages covering 80% of the total present value of its domestic oil and gas properties.
The unaudited pro forma consolidated statements of income for the three months ended March 31, 2003 and the year ended December 31, 2002 assume the Reorganization, Debt Issuance, Spin-off and Merger transactions and the New Notes Offering occurred on January 1, 2003 and 2002, respectively. The unaudited pro forma consolidated balance sheet at March 31, 2003 assumes the New Notes offering and merger transactions occurred on that date. Plains believes the assumptions used provide a reasonable basis for presenting the significant effects directly attributable to such transactions.
The unaudited pro forma consolidated financial statements do not purport to represent what Plains’ results of operations would have been if such transactions had occurred on such dates. These unaudited pro forma consolidated financial statements should be read in conjunction with the Consolidated Financial Statements of Plains Exploration & Production Company, the Consolidated Financial Statements of 3TEC Energy Corporation and Management’s Discussion and Analysis of Financial Condition and Results of Operations of such companies.
4
Plains Exploration & Production Company
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Three Months Ended March 31, 2003
(in thousands, except per share data)
| Plains Historical | Offering Adjustments | Plains Pro forma | 3TEC Historical | Merger Adjustments | Plains Pro forma Adjusted | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Oil, gas and plant revenues | $ | 51,531 | $ | — | $ | 51,531 | $ | 48,372 | $ | (41 | )(4) | $ | 99,862 | |||||||||||
Gain (loss) on sale of properties | — | — | 59 | (59 | )(9) | — | ||||||||||||||||||
Gain (loss) on derivative fair value | — | — | 583 | (583 | )(11) | — | ||||||||||||||||||
Gain (loss) on derivative settlements | — | — | (14,993 | ) | 14,993 | (11) | — | |||||||||||||||||
Other operating revenues | 207 | — | 207 | 53 | (53 | )(11) | 207 | |||||||||||||||||
| 51,738 | — | 51,738 | 34,074 | 14,257 | 100,069 | |||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||
Production expenses | 21,013 | — | 21,013 | 7,996 | — | 29,009 | ||||||||||||||||||
Geological and geophysical | — | — | — | 3,608 | (3,608 | )(9) | — | |||||||||||||||||
Dry hole and impairments | — | — | — | 2,161 | (2,161 | )(9) | — | |||||||||||||||||
General and administrative | 3,076 | 3,076 | 2,575 | (266 | )(9) | 5,385 | ||||||||||||||||||
| (10,372 | )(5) | |||||||||||||||||||||||
| 6,711 | (6) | |||||||||||||||||||||||
| (96 | )(7) | |||||||||||||||||||||||
Depreciation, depletion and amortization | 7,723 | 19 | (1) | 7,742 | 10,634 | 250 | (12) | 14,869 | ||||||||||||||||
Accretion of asset retirement obligation | 582 | — | 582 | 84 | — | 666 | ||||||||||||||||||
| 32,394 | 19 | 32,413 | 27,058 | (9,542 | ) | 49,929 | ||||||||||||||||||
Income from Operations | 19,344 | (19 | ) | 19,325 | 7,016 | 23,799 | 50,140 | |||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
| 831 | (7) | |||||||||||||||||||||||
Interest expense | (4,856 | ) | (1,445 | )(2) | (6,301 | ) | (831 | ) | (665 | )(8) | (6,966 | ) | ||||||||||||
Derivative fair value gain (loss) | — | — | — | 583 | (11) | 583 | ||||||||||||||||||
Derivative settlement gain (loss) | — | — | — | (14,993 | )(11) | (14,993 | ) | |||||||||||||||||
Merger costs | — | — | — | (894 | ) | 894 | (10) | |||||||||||||||||
Interest and other income (expense) | 33 | — | 33 | 53 | (11) | 86 | ||||||||||||||||||
Income Before Income Taxes and Cumulative Effect of Accounting Change | 14,521 | (1,464 | ) | 13,057 | 5,291 | 10,502 | 28,850 | |||||||||||||||||
Income tax benefit (expense) | (5,918 | ) | 556 | (3) | (5,362 | ) | (2,064 | ) | (4,114 | )(13) | (11,540 | ) | ||||||||||||
Income Before Cumulative Effect of Accounting Change | $ | 8,603 | $ | (908 | ) | $ | 7,695 | $ | 3,227 | $ | 6,388 | $ | 17,310 | |||||||||||
Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.36 | $ | 0.32 | $ | 0.43 | ||||||||||||||||||
Diluted | $ | 0.35 | $ | 0.32 | $ | 0.43 | ||||||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||
Basic | 24,015 | 24,015 | 16,070 | (14) | 40,085 | |||||||||||||||||||
Diluted | 24,225 | 24,225 | 16,070 | (14) | 40,295 | |||||||||||||||||||
(footnotes on following page)
5
Offering Adjustments
| (1) | Reflects amortization of debt issue costs for the period, on a straight line basis that approximates the interest method, over the life of the New Notes. |
| (2) | Reflects interest expense at a rate of 7.71% (net of premium on issuance) for the period on the 8.75% Notes issued in the New Notes offering, assuming that the New Notes were issued on January 1, 2003. A 1/8 of 1% change in the interest rate would result in a $24 thousand change in interest expense. |
| (3) | Reflects the income tax effect of the Offering Adjustments based on Plains’ historical effective income tax rate. |
Merger Adjustments
| (4) | Reflects the $0.20 per barrel marketing fee Plains pays to Plains All American Pipeline, L.P. |
| (5) | Reflects the reversal of 3TEC’s historical DD&A expense related to oil and gas properties. |
| (6) | Reflects the effect of the merger on DD&A expense on oil and gas properties under the full cost method. |
| (7) | Reflects the reversal of 3TEC’s amortization of deferred debt issue costs and interest expense with respect to 3TEC’s debt that will be retired in the merger. |
| (8) | Reflects interest expense for the period on $216.7 million of debt incurred in connection with the acquisition net of $0.9 million of capitalized interest. Interest expense is based on an estimated borrowing rate under Plains’ senior revolving credit facility (3.0%). Capitalized interest is based on the $62.8 million of purchase price allocated to oil and gas properties not subject to amortization and Plains’ effective average interest rate (6.0% based on pro forma debt). A 1/8 of 1% change in the interest rate would result in a $0.1 million change in interest expense. |
| (9) | Reflects the reversal of certain 3TEC’s income items that are charged or credited to income under the successful efforts method of accounting that are capitalized under the full cost method of accounting. |
| (10) | Reflects the reversal of 3TEC expenses related to the merger. |
| (11) | Reflects the reclassification of certain 3TEC revenue and expense items to conform to the Plains presentation. |
| (12) | Reflects amortization of estimated debt issue cost for the period, on a straight-line basis that approximates the interest method over the life of the agreement. |
| (13) | Reflects the adjustment of income tax expense to a post-merger effective rate of 40.0%. |
| (14) | Reflects common shares issued in the merger. |
6
Plains Exploration & Production Company
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Year Ended December 31, 2002
(in thousands, except per share data)
| Plains Historical | Reorganization, Debt Issuance and Spin-Off Adjustments | Plains Pro forma | Offering Adjustments | Plains Pro forma (Offering) | 3TEC Historical | Merger Adjustments | Plains Pro forma Adjusted | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Oil, gas and plant revenues | $ | 188,337 | $ | — | $ | 188,337 | $ | — | $ | 188,337 | $ | 103,064 | $ | (166 | )(11) | $ | 291,235 | |||||||||||||||
Gain (loss) on sale of properties | — | — | — | — | — | (159 | ) | 159 | (17) |
| — |
| ||||||||||||||||||||
Gain (loss) on derivative fair value | — | — | — | — | — | (6,632 | ) | 6,632 | (18) | — | ||||||||||||||||||||||
Gain (loss) on derivative settlements | — | — | — | — | — | (5,644 | ) | 5,644 | (18) | — | ||||||||||||||||||||||
| (189 | )(17) | |||||||||||||||||||||||||||||||
Other operating revenues | 226 | 226 | — | 226 | 473 | (284 | )(18) | 226 | ||||||||||||||||||||||||
| 188,563 | — | 188,563 | — | 188,563 | 91,102 | 11,796 | 291,461 | |||||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||
Production expenses | 78,451 | — | 78,451 | — | 78,451 | 25,326 | 188 | (18) | 103,965 | |||||||||||||||||||||||
Geological and geophysical | — | — | — | — | — | 2,683 | (2,683 | )(17) | — | |||||||||||||||||||||||
Dry hole and impairments | — | — | — | — | — | 8,918 | (8,918 | )(17) | — | |||||||||||||||||||||||
Surrendered and expired acreage | — | — | — | — | — | 860 | (860 | )(17) | — | |||||||||||||||||||||||
| (816 | )(17) | |||||||||||||||||||||||||||||||
General and administrative (7) | 15,186 | — | 15,186 | — | 15,186 | 9,970 | 310 | (18) | 24,650 | |||||||||||||||||||||||
| (36,002 | )(12) | |||||||||||||||||||||||||||||||
| 26,320 | (13) | |||||||||||||||||||||||||||||||
Depreciation, depletion and | (451 | )(2) | (599 | )(14) | ||||||||||||||||||||||||||||
amortization | 30,359 | 966 | (3) | 30,874 | 76 | (8) | 30,950 | 37,357 | 1,000 | (16) | 59,026 | |||||||||||||||||||||
| 123,996 | 515 | 124,511 | 76 | 124,587 | 85,114 | (22,060 | ) | 187,641 | ||||||||||||||||||||||||
Income from Operations | 64,567 | (515 | ) | 64,052 | (76 | ) | 63,976 | 5,988 | 33,856 | 103,820 | ||||||||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||||||||||
Expenses of terminated public equity offering | (2,395 | ) | — | (2,395 | ) | — | (2,395 | ) | — | — | (2,395 | ) | ||||||||||||||||||||
| 9,732 | (1) | |||||||||||||||||||||||||||||||
| 9,536 | (2) | |||||||||||||||||||||||||||||||
| (20,497 | )(4) | 3,962 | (14) | |||||||||||||||||||||||||||||
Interest expense | (19,377 | ) | 1,841 | (5) | (18,765 | ) | (5,779 | )(9) | (24,544 | ) | (3,962 | ) | (2,657 | )(15) | (27,201 | ) | ||||||||||||||||
Derivative fair value gain (loss) | — | — | — | — | (6,632 | )(18) | (6,632 | ) | ||||||||||||||||||||||||
Derivative settlement gain (loss) | — | — | — | — | (5,644 | )(18) | (5,644 | ) | ||||||||||||||||||||||||
Interest and other income | 132 | (17) | ||||||||||||||||||||||||||||||
(expense) | 174 | — | 174 | — | 174 | (629 | ) | 782 | (18) | 459 | ||||||||||||||||||||||
Income Before Income Taxes | 42,969 | 97 | 43,066 | (5,855 | ) | 37,211 | 1,397 | 23,799 | (18) | 62,407 | ||||||||||||||||||||||
Income tax benefit (expense) | (16,732 | ) | (38 | )(6) | (16,770 | ) | 2,342 | (10) | (14,428 | ) | (45 | ) | (10,490 | )(19) | (24,963 | ) | ||||||||||||||||
Net Income(21) | $ | 26,237 | $ | 59 | $ | 26,296 | $ | (3,513 | ) | $ | 22,783 | $ | 1,352 | $ | 13,309 | $ | 37,444 | |||||||||||||||
Earnings Per Share(21) | ||||||||||||||||||||||||||||||||
Basic | $ | 1.08 | $ | 1.09 | $ | 0.94 | $ | 0.93 | ||||||||||||||||||||||||
Diluted | $ | 1.08 | $ | 1.09 | $ | 0.94 | $ | 0.93 | ||||||||||||||||||||||||
Weighted Average Shares Outstanding | ||||||||||||||||||||||||||||||||
Basic | 24,193 | 24,193 | 24,193 | 16,070 | (20) | 40,263 | ||||||||||||||||||||||||||
Diluted | 24,201 | 24,201 | 24,201 | 16,070 | (20) | 40,271 | ||||||||||||||||||||||||||
(footnotes on following page)
7
Reorganization, Debt Issuance and Spin-off Adjustments
Reorganization
| (1) | Reflects the reversal of historical interest expense related to amounts payable to Plains Resources since such amounts payable were contributed to Plains under the terms of the Separation Agreement. |
Debt Issuance
| (2) | Reflects the reversal of historical amortization of debt issue costs and interest expense. |
| (3) | Reflects amortization of debt issue costs for the period, on a straight line basis that approximates the interest method, over the life of the 8.75% Notes and Plains credit facility. |
| (4) | Reflects interest expense for the period on the 8.75% Notes ($17.7 million) and the Plains credit facility ($5.2 million). Interest expense with respect to the 8.75% Notes includes $0.2 million of amortization of original issue discount. Interest expense with respect to the Plains credit facility is computed based on Plains’ average borrowing rate under the terms of the agreement (3.0%). A 1/8 of 1% change in the interest rate with respect to the Plains credit facility would result in a $0.1 million change in interest expense. Pro forma amount reflects interest expense after capitalization of $2.4 million. |
Spin-off
| (5) | Reflects the reversal of interest expense for the period on debt retired in December 2002 using the proceeds from $47.2 million of capital contributions by Plains Resources. Interest expense is based on Plains’ average borrowing rate under the Plains credit facility (3.0%). A 1/8 of 1% change in the interest rate would result in less than a $0.1 million change in interest expense. |
Income Taxes
| (6) | Reflects the income tax effect of (i) the Reorganization Adjustments ($3.8 million expense); (ii) the Debt Issuance Adjustments ($4.5 million benefit); and (iii) the Spin-off Adjustments ($0.7 million expense) based on Plains’ historical effective income tax rate. |
Stock Appreciation Rights
| (7) | When the spin-off occurred, Plains employees holding options to acquire Plains Resources common stock received an equal number of stock appreciation rights, or SARs, with respect to Plains common stock. The exercise price of the SARs is based on the relationship between the price of Plains Resources common stock and Plains common stock at the time of the spin-off. With respect to the SARs that were in-the-money at the time of the spin-off, Plains recognized an initial accounting charge of $2.7 million in December 2002 as compensation expense equal to the aggregate in-the-money value of the SARs deemed vested at that time. In addition, Plains recognized a $1.0 million accounting charge to reflect the movement in its common stock price and the vesting deemed to have occurred from the spin-off date to December 31, 2002. |
SARs are subject to variable accounting treatment. As a result, at the end of each quarter, Plains will compare the closing price of Plains common stock to the exercise price of each SAR. To the extent the closing price exceeds the exercise price of each SAR that is vested or for accounting purposes is deemed vested during the incremental period, Plains will recognize such excess as an accounting charge to the extent such excess had not been recognized in previous quarters. If such excess is less than the extent to which accounting charges had been recognized in previous quarters, Plains will recognize the difference as income in the quarter. These quarterly charges and income will make Plains’ results of operations depend, in part on fluctuations in the price of Plains common stock and could have a material adverse effect on Plains’ results of operations.
Offering Adjustments
| (8) | Reflects amortization of debt issue costs for the period, on a straight line basis that approximates the interest method, over the life of the New Notes. |
| (9) | Reflects interest expense at a rate of 7.71% (net of premium) for the period on the 8.75% Notes issued in the New Notes offering, assuming that the New Notes were issued on January 1, 2002. A 1/8 of 1% change in the interest rate would result in a $98 thousand change in interest expense. |
| (10) | Reflects the income tax effect of the Offering Adjustments based on Plains’ historical effective income tax rate. |
Merger Adjustments
| (11) | Reflects the $0.20 per barrel marketing fee Plains pays to Plains All American Pipeline, L.P. |
| (12) | Reflects the reversal of 3TEC’s historical DD&A expense related to oil and gas properties. |
| (13) | Reflects the effect of the merger on DD&A expense on oil and gas properties under the full cost method. |
| (14) | Reflects reversal of 3TEC’s amortization of deferred debt issue costs and interest expense with respect to 3TEC’s debt that will be retired in the merger. |
8
| (15) | Reflects interest expense for the period on $216.7 million of debt incurred in connection with the acquisition net of $3.7 million of capitalized interest. Interest expense is based on estimated borrowing rate under Plains’ senior revolving credit facility (3.0%). Capitalized interest is based on the $62.8 million of purchase price allocated to oil and gas properties not subject to amortization and Plains’ effective average interest rate (6.0% based on pro forma debt). A 1/8 of 1% change in the interest rate would result in a $0.3 million change in interest expense. |
| (16) | Reflects amortization of estimated debt issue cost for the period, on a straight-line basis that approximates the interest method over the life of the agreement. |
| (17) | Reflects the reversal of certain 3TEC income items that are charged or credited to income under the successful efforts method of accounting that are capitalized under the full cost method of accounting. |
| (18) | Reflects the reclassification of certain 3TEC revenue and expense items to conform to the Plains presentation. |
| (19) | Reflects the adjustment of income tax expense to a post-merger effective rate of 40.0%. |
| (20) | Reflects common shares issued in the merger. |
Asset Retirement Obligations
| (21) | Effective January 1, 2003, Plains and 3TEC adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). If SFAS 143 had been applied effective January 1, 2002, Plains’ pro forma adjusted net income and diluted earnings per share would have been $38.2 million and $0.95, respectively. |
9
Plains Exploration & Production Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
at March 31, 2003
(in thousands of dollars)
| Plains Historical | Offering Adjustments(1) | Plains Pro forma | Merger Adjustments(2) | Plains Adjusted | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
| $ | 79,875 | $ | (79,375 | ) | ||||||||||||||||
Cash and cash equivalents | $ | 1,002 | (500 | ) | $ | 80,377 | 1,846 | $ | 2,848 | |||||||||||
Accounts receivable—Plains All America Pipeline, L.P. | 25,722 | — | 25,722 | — | 25,722 | |||||||||||||||
Other accounts receivable | 3,545 | — | 3,545 | 25,386 | 28,931 | |||||||||||||||
Commodity hedging contracts | 1,623 | — | 1,623 | — | 1,623 | |||||||||||||||
Inventories | 5,993 | — | 5,993 | — | 5,993 | |||||||||||||||
Other current assets | 1,133 | — | 1,133 | 3,004 | 4,137 | |||||||||||||||
| 39,018 | 79,375 | 118,393 | (49,139 | ) | 69,254 | |||||||||||||||
Property and Equipment, at cost | ||||||||||||||||||||
Oil and gas properties—full cost method | ||||||||||||||||||||
Subject to amortization | 661,769 | — | 661,769 | 302,151 | 963,920 | |||||||||||||||
Not subject to amortization | 30,779 | — | 30,779 | 62,773 | 93,552 | |||||||||||||||
Other property and equipment | 2,286 | — | 2,286 | 2,269 | 4,555 | |||||||||||||||
| 694,834 | — | 694,834 | 367,193 | 1,062,027 | ||||||||||||||||
Allowance for depreciation, depletion and amortization | (145,174 | ) | — | (145,174 | ) | — | (145,174 | ) | ||||||||||||
| 549,660 | — | 549,660 | 367,193 | 916,853 | ||||||||||||||||
Goodwill | — | — | — | 140,003 | 140,003 | |||||||||||||||
Other assets | 19,047 | 688 | 19,735 | 638 | 20,373 | |||||||||||||||
| $ | 607,725 | $ | 80,063 | $ | 687,788 | $ | 458,695 | $ | 1,146,483 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Accounts payable and other current liabilities | $ | 62,782 | $ | — | $ | 62,782 | $ | 19,990 | $ | 82,772 | ||||||||||
Commodity hedging contracts | 24,012 | — | 24,012 | 2,968 | 26,980 | |||||||||||||||
Current maturities on long-term debt | 511 | — | 511 | — | 511 | |||||||||||||||
| 87,305 | — | 87,305 | 22,958 | 110,263 | ||||||||||||||||
Long-Term Debt | 229,919 | 80,063 | 309,982 | 216,681 | 526,663 | |||||||||||||||
Asset Retirement Obligation | 26,240 | — | 26,240 | 4,835 | 31,075 | |||||||||||||||
Other Long-Term Liabilities | 9,464 | — | 9,464 | — | 9,464 | |||||||||||||||
Deferred Income Taxes | 61,932 | — | 61,932 | 62,035 | 123,967 | |||||||||||||||
Stockholders’ Equity | ||||||||||||||||||||
Stockholders’ equity | 208,351 | — | 208,351 | 152,186 | 360,537 | |||||||||||||||
Accumulated other comprehensive income (loss) | (15,486 | ) | — | (15,486 | ) | — | (15,486 | ) | ||||||||||||
| 192,865 | — | 192,865 | 152,186 | 345,051 | ||||||||||||||||
| $ | 607,725 | $ | 80,063 | $ | 687,788 | $ | 458,695 | $ | 1,146,483 | |||||||||||
(footnotes on following page)
10
Offering Adjustments
| (1) | Reflects the New Notes offering and the application of the net proceeds. |
Merger Adjustments
| (2) | Reflects the estimated pro forma allocation of the purchase price using the purchase method of accounting. The following is a calculation and allocation of the purchase price to assets acquired and liabilities assumed based on their relative fair value (in thousands, except as noted): |
Calculation of Estimated Purchase Price: | ||||
Number of shares to be issued | 16,070 | |||
Average Plains common stock price per share | $ | 9.47 | ||
Fair Value of common stock to be issued | $ | 152,186 | ||
Cash to 3TEC stockholders | 175,455 | |||
3TEC debt outstanding at March 31, 2003 | 106,000 | |||
Deferred tax liability related to the merger | 62,035 | |||
Estimated merger costs | 17,788 | |||
Estimated purchase price | $ | 513,464 | ||
Allocation of Estimated Purchase Price: | ||||
Current assets | $ | 30,236 | ||
Oil and gas properties and equipment | ||||
Subject to amortization | 302,151 | |||
Not subject to amortization (a) | 62,773 | |||
Other properties and equipment | 2,269 | |||
Goodwill | 140,003 | |||
Other assets | 3,825 | |||
Current liabilities | (22,958 | ) | ||
Asset retirement obligation | (4,835 | ) | ||
Estimated purchase price | $ | 513,464 | ||
The cash portion of the purchase price of $299.2 million was partially funded by the net proceeds of $79.4 million from the New Notes Offering.
| (a) | In the process of allocating the purchase price, Plains reviewed 3TEC’s exploration opportunities targeting probable and possible reserves. Based on its assessment of the 3TEC exploration opportunities, Plains’ internal staff assigned 11.8 MMBOE of probable and possible reserves with estimated future net revenues of $151 million (undiscounted) to the properties acquired in the merger. Probable and possible reserves have a much higher risk profile than proved undeveloped reserves and thus the range of ultimate results can vary widely. Based on this assessment, $62.8 million of the estimated purchase price has been allocated to properties not subject to amortization. |
The majority of the probable and possible reserves are located in untested fault blocks in a productive basin that has 3D seismic interpretive data showing hydrocarbon potential. Hydrocarbon indicators do not eliminate prospect risk as non-commercial breached traps and residual hydrocarbon saturations also have positive indicators.
Reserves for these prospects will only become proved if commercial wells are drilled into these unproved fault blocks.
The number of Plains shares to be issued is based on 16.9 million shares of 3TEC common stock outstanding plus the conversion on a cashless basis of outstanding options to purchase 3TEC common stock and outstanding warrants to purchase 3TEC common stock of $3.00 per share. The average Plains common stock price is based on the average closing prices of Plains common stock during the five business day period commencing two business days before the merger was announced.
11
Effective as of January 1, 2003, 3TEC adopted SFAS 143 which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The adoption of SFAS 143 resulted in the recognition of a liability for asset retirement obligations of approximately $5.1 million. In connection with the merger and under the purchase method of accounting, Plains assumed the asset retirement obligation and will record the fair value of the obligation as of the date of the acquisition. The effect of recording the obligation will result in an increase to oil and natural gas properties subject to amortization and other long-term liabilities.
The significant factors which contribute to the recognition of goodwill, include but are not limited to, providing a presence in East Texas and the Gulf Coast regions that can be used to pursue other opportunities in these core operating areas, improve financial flexibility with more efficient access to lower cost capital and higher returns from synergies in having a broader and more diversified reserve base and the ability to acquire an established business with an assembled workforce. In addition, additional goodwill has been recorded due to the application of purchase accounting rules which require that deferred taxes be recorded at undiscounted amounts.
The cash to 3TEC stockholders is based on $8.50 per share to be paid with respect to 16.9 million shares of 3TEC common stock outstanding plus the converted options to purchase 3TEC common stock and warrants to purchase 3TEC common stock for $3.00 per share. 3TEC preferred stockholders will receive $24.00 per share, plus accrued and unpaid dividends, for each of the 0.6 million preferred shares outstanding.
The cash to pay the 3TEC stockholders and retire the 3TEC debt was funded by Plains’ new credit facility and the proceeds from the New Notes.
The purchase price allocation is subject to changes in the fair value of 3TEC’s working capital and other assets and liabilities on the effective date and the actual merger costs incurred.
12
Plains Exploration & Production Company
Pro Forma Reserve Data
| Plains | 3TEC | Plains Pro Adjusted | ||||||||||
Estimated Quantities of Oil & Gas Reserves at December 31, 2002 | ||||||||||||
Proved Reserves | ||||||||||||
Oil (MBbl) | 240,161 | 6,208 | 246,369 | |||||||||
Gas (MMcf) | 77,154 | 259,026 | 336,180 | |||||||||
Proved Developed Reserves | ||||||||||||
Oil (MBbl) | 127,415 | 5,546 | 132,961 | |||||||||
Gas (MMcf) | 53,317 | 205,301 | 258,618 | |||||||||
Standardized Measure of Discounted Future Net Cash Flows at December 31, 2002 (in thousands) | ||||||||||||
Future cash inflows | $ | 6,819,645 | $ | 1,285,657 | $ | 8,105,302 | ||||||
Future development costs | (431,841 | ) | (53,127 | ) | (484,968 | ) | ||||||
Future production expense | (2,528,065 | ) | (284,860 | ) | (2,812,925 | ) | ||||||
Future income tax expense | (1,446,528 | ) | (277,372 | ) | (1,723,900 | ) | ||||||
Future net cash flows | 2,413,211 | 670,298 | 3,083,509 | |||||||||
Discounted at 10% per year | (1,529,704 | ) | (320,858 | ) | (1,850,562 | ) | ||||||
Standardized measure of discounted future net cash flows | $ | 883,507 | $ | 349,440 | $ | 1,232,947 | ||||||
13
(c) Exhibits
| 2.1 | Agreement and Plan of Merger, by and among PXP, PXP Gulf Coast Inc. and 3TEC, dated February 2, 2003, and incorporated herein by reference to PXP’s Current Report on Form 8-K, Exhibit 10.1, filed on February 3, 2003. | |
| 23.1 | Consent of KPMG LLP. | |
| 99.1 | Press release dated June 4, 2003. | |
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Plains Exploration & Production Company |
/s/ Stephen A. Thorington |
Stephen A. Thorington Executive Vice President and Chief Financial Officer |
Dated:June 19, 2003
15
EXHIBIT INDEX
| Exhibit Number | Description | |
| 2.1 | Agreement and Plan of Merger, by and among PXP, PXP Gulf Coast Inc. and 3TEC, dated February 2, 2003, and incorporated herein by reference to PXP’s Current Report on Form 8-K, Exhibit 10.1, filed on February 3, 2003. | |
| 23.1 | Consent of KPMG LLP. | |
| 99.1 | Press release dated June 4, 2003. | |
